FOCUS
43
FORTUNE.COM // SEPTEMBER 2019
INSIDE THE BARGAIN HUNTER’S LAB
As overall stock valuations hover near historic highs, it’s harder than ever to find fast-growing companies
with reasonably priced shares. We found four that fit the formula for big gains. By Ryan DerousseauINVEST
FEARS OF A DOMESTIC SLOWDOWN and the escalation of the
U.S.-China trade war created plenty of headaches for
shareholders this summer. But even after dramatic market swoons
in May and August, investors still seem willing to pay top dollar for
stocks—especially those that promise substantial growth.
As measured by the Shiller price-to-earnings ratio, which com-
pares companies’ share prices to the 10-year, inflation-adjusted
average of their profits, the S&P 500 sat at just above 29 in mid-
August. That’s higher than at nearly any other time on record, with
the exceptions of the run-up in 1929 and the 2000 dotcom boom.
(Neither one of those surges ended well, as you may recall.)
What’s more, as investors anticipate the inevitable end of the cur-
rent bull market, institutional players like mutual funds and hedge
funds have concentrated their money in the companies that seem
like the safest bets for earnings growth. That has driven valuations
for such crowded-trade stocks even higher—in mid-August, Visaand Facebook traded at more than 30 times
earnings, while Adobe and PayPal traded at
around 50 times earnings.
It all creates a conundrum for Warren
Buffett–style value investors—the ones who
seek the long-term potential that comes from
a combination of robust growth and a reason-
able price tag. To find such value candidates,
we scoured this year’s list of FortuneÕs Fastest-
Growing Companies (see the full list on
page 117) and found four that combine strong
earnings outlooks with valuations that remain
far below nosebleed territory.
SVB Financial Group (SIVB, $201) fills an unusual
niche: It’s the holding company of Silicon Val-
ley Bank (SVB), which specializes in lendingCYCLING UP
Workers at Lam
Research, whose
memory-storage
hardware is in
demand again.CO